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An Update from the Tax Team: Is Mortgage Interest Still Deductible?

Kevin Koski – Carlson Capital Management
Kevin Koski, CPA

Principal Tax Advisor
651.319.8067
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Professional Biography
Kevin Koski serves as Principal Tax Advisor at Carlson Capital Management and with CCM Tax & Trust Administration, a commonly-held affiliate of Carlson Capital Management. Kevin works closely with the advisory team to deliver clients fully integrated wealth management services, lending his experience to proactive tax-related planning. As a senior member of the Tax Team, Kevin plays a lead role and helps to oversee the preparation, review, and completion of individual and trust tax returns and tax projections. Kevin participates in client meetings and serves as a tax resource for clients, both individually and collaboratively with other advisors, to develop customized recommendations.

Kevin came to CCM with strong expertise having worked with clients at a St. Paul CPA firm for 15 years. In his role there, Kevin provided leadership and direction for the firm’s tax services practice, and advised clients on income and estate tax matters. Kevin was also an advisor on general financial planning topics such as stock option analysis, charitable planning, and gifting strategies for high-net-worth individuals and families. Kevin is a member of the American Institute of Certified Public Accountants and the Minnesota Society of CPAs.

Kevin grew up in Virginia, Minnesota and is a graduate of the University of Minnesota-Duluth, where he earned his bachelor’s degree in accounting. Shortly following graduation, Kevin earned his Certified Public Accountant (CPA) status. Outside of work, Kevin has three children and enjoys volunteering as a coach and assistant with their athletic teams. Kevin and his family reside in South Minneapolis.

Kevin and other members of the CCM Tax Team regularly post articles of interest on tax planning topics which you can find here.

Kevin Koski
Kevin Koski, CPA
Principal Tax Advisor

Among many other changes we’ve highlighted in recent communications, the Tax Cuts and Jobs Act of 2017 changed the rules regarding home mortgage interest tax deductions for tax years 2018-2025. Many CCM clients have had questions about this so we wanted to share some key factors that will determine the deductibility of interest paid on a mortgage loan.

  1.  The mortgage must qualify as acquisition debt in order for the interest to be deductible as home mortgage interest. Acquisition debt is debt that is secured by the taxpayer’s principal or second home, and was incurred in acquiring, constructing, or substantially improving the taxpayer’s principal or second home.
  2.  The amount of acquisition debt incurred after December 14, 2017, that qualifies for the home mortgage interest deduction is limited to $750,000. For example, if you were to buy a $1,500,000 house with a $1,200,000 mortgage, only the interest that you pay on the first $750,000 in debt is deductible. The interest paid on a mortgage balance in excess of $750,000 is considered personal interest and is not deductible. For acquisition debt incurred prior to December 15, 2017, the applicable limit is $1,000,000.The debt limit is applied on a combined basis to the total acquisition debt on a primary or second home.
  3.  The interest paid on new or existing home equity debt is not tax deductible. Home equity debt is debt that is secured by the taxpayer’s principal or second home and was not incurred in acquiring, constructing, or substantially improving the taxpayer’s principal or second home. It is important to note that acquisition debt and home equity debt are terms defined by the Internal Revenue Code. The terminology used by the bank or mortgage company does not impact whether debt is acquisition debt or home equity debt. For example, a home equity line of credit used to substantially improve a taxpayer’s home is acquisition debt and is not home equity debt. On the other hand, a first position mortgage used to pay off credit card debt is home equity debt and not acquisition debt.
  4.  Interest on a refinanced mortgage is deductible as home mortgage interest subject to the rules above. The applicable acquisition debt limit is based on the when old mortgage was incurred. For example, if the old mortgage was incurred prior to December 15, 2017, the refinanced mortgage is subject to a $1,000,000 limit. The amount of the refinanced debt that qualifies for the home mortgage interest deduction can’t exceed the amount of the old mortgage balance prior to the refinance. In other words, a cash out refinance would not qualify.
  5.  Home equity debt is not deductible as home mortgage interest, but may be deductible under a separate section of the Internal Revenue Code based upon how the proceeds were used. Some examples of this include the following:
  • If home equity debt was used to invest in stocks, the interest would be deductible as investment interest.
  • If the home equity debt was used to fund an existing business, the interest paid would be deductible as business interest expense.
  • If the home equity debt was used to purchase a rental property, the interest paid would be deductible against the rental income.

Changes in the home mortgage interest deduction significantly impact the analysis of many important financial planning decisions. We are assessing how these changes may affect your integrated wealth plan. Please contact us if you have any related questions.


NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.

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Published April 16, 2019 Topics: Financial Planning, Tax Planning, Tax Reform

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